- 9 -
any hypothetical underpayments of tax and receives interest from
the Government on any hypothetical overpayments of tax.
If an amount of revenue or cost attributable to a completed
long-term contract is properly taken into account in a
postcompletion year, section 460(b)(1)(B) requires a taxpayer to
reapply the look-back method in that postcompletion year unless
the taxpayer elects otherwise. For this purpose, section
460(b)(2) requires a taxpayer to discount the amount of revenue
or cost to its present value as of the contract’s completion date
and to redetermine the contract’s “actual contract price”.
Promulgated in October 1990, section 1.460-6(c)(2)(vi),
Income Tax Regs., 55 Fed. Reg. 41665-01 (Oct. 15, 1990),
provides:
(vi) Amount treated as contract price--(A) General
rule. The amount that is treated as total contract
price for purposes of applying the percentage of
completion method and reapplying the percentage of
completion method under the look-back method under Step
One includes all amounts that the taxpayer expects to
receive from the customer. Thus, amounts are treated
as part of the contract price as soon as it is
reasonably estimated that they will be received, even
if the all-events test has not yet been met.
(B) Contingencies. Any amounts related to
contingent rights or obligations, such as incentive
fees or amounts in dispute, are not separated from the
contract and accounted for under a non-long-term
contract method of accounting, notwithstanding any
provision in � 1.451-3(b)(2)(ii), (iii), (iv), and �
1.451-3(d)(2), (3), and (4), to the contrary. Instead,
those amounts are treated as part of the total contract
price in applying the percentage of completion method
and the look-back method. For example, if an incentive
fee under a contract to manufacture a satellite is
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011